MAIN IMAGE: Deon Terblanche – chief executive officer and regional director of Keller Williams Southern Africa, Rudolf Britz – chief actuary at Momentum Insure
Kerry Dimmer
Letting a buyer move in before the transfer can seem like a simple courtesy, but it carries risks many agents underestimate. A recent matter in the Gauteng High Court, reported by LawDotNews, sets out just how much can go wrong.
The case concerned the cancellation of a sale of a smallholding in Kyalami. The purchaser had taken occupation of parts of the property, including a restaurant and farm stall, before transfer. While the purchaser was in occupation, an arsonist set fire to the restaurant. Neither party was responsible for the blaze, but the sale agreement placed the risk of damage on the purchaser, and when the sale was later cancelled, the purchaser’s R2.15 million repayment was reduced by the “fair and reasonable” cost of repairing the fire damage.
The dispute was complicated by the fact that the damaged structures had not been in perfect condition when the purchaser first took occupation. The court had to determine the cost of restoring the property without leaving the seller with buildings materially better than those originally handed over. Restoration was eventually put at roughly R1.36 million, leaving about R799 000 repayable to the purchaser, plus some R614 000 in interest.
According to Deon Terblanche, chief executive officer and regional director of Keller Williams Southern Africa and an admitted attorney, the outcome took years and two sets of expert witnesses arguing over details as fine as the thickness of window glass. “The judge had to make a ruling from photographs, considering two competing expert reports that differed by roughly R677 000. Everything turned on the building’s condition at handover, and nobody had written it down at the time,” he says. “The seller got a burnt building back and paid the legal costs. In this case, restitution worked exactly as the law intends, and nobody won.”
The walk-through is essential
Terblanche’s central point is that a joint walk-through by buyer and seller is critical. “A joint walk-through would have turned the argument into a simple, clear document,” he says. The first inspection occurs on the day the buyer takes occupation and records the property’s condition at that time. The second happens on the day the arrangement ends, whichever way it ends: the date of registration if the sale goes through, or the day the buyer moves out and hands back the keys if it collapses.
That second inspection shows what changed while the buyer was in occupation. Terblanche advises that both parties sign every page, that date-stamped photographs be taken of the geyser, roof, gutters, damp, pool equipment, gate motor, borehole, and anything already broken, and that meter readings be signed on the day. “It protects both sides equally, which is what makes it an easy conversation to have,” he says. “A seller who skips it has no proof of what he handed over. A buyer who skips it has no proof of what he inherited.”
Agents should address the misconceptions
The challenge, Terblanche says, is that buyers often do not understand the distinction among occupation, ownership, and risk before they move in, and he points to four recurring misconceptions.
The first is that receiving the keys means the property belongs to the buyer. It does not. Ownership of immovable property passes only on registration in the Deeds Office, and until then the buyer is occupying someone else’s asset. The second, and potentially more costly, is the assumption that any problems remain the seller’s responsibility until transfer. “In almost every standard agreement of sale, risk and benefit pass on occupation, not on transfer,” Terblanche explains. “From the day the buyer takes occupation, they may therefore carry risks associated with damage to the property, depending on the terms of the agreement.”
Third, buyers may assume that if the deal collapses they simply hand back the keys and recover their money. In practice, Terblanche says, they may be required to restore the property to the condition in which they received it, and disputes can arise over what that condition actually was. The fourth is the belief that insurance will automatically cover the property. “The seller’s insurer may take a different view of a policy where the seller no longer occupies the property, while the buyer’s homeowner’s cover may only begin when the bond registers,” he says.
Understanding the insurance
Rudolf Britz, chief actuary at Momentum Insure, says cover should sit with whoever would bear the financial loss. “Insurance should be purchased by the party who would suffer a financial loss should something happen to the building. Ask yourself, who would stand to suffer an economic loss if the building were to burn down?”
Common law, Britz explains, holds that risk transfers once the property is identified, the price is agreed, and any suspensive conditions are met, which usually falls before transfer. “However, many modern agreements override common law, explicitly stating that risk transfers on the date of transfer or the date of occupation. One should take care to read the contract to understand this.” Where occupation happens late in the process, he says, the risk has most likely already transferred, and the seller’s policy will therefore not cover a loss after occupation.
Britz notes that in the majority of building claims, the identity of the party carrying the risk would not have changed whether the event occurred or how large the loss was, using a burst geyser as an example, so insurable interest is not always tested at claims stage. “However, legally a claim can be repudiated if there is no insurable interest, and practically, once a property is no longer owned by someone, the likelihood of them keeping that cover in place is low,” he says.
He adds that larger claims, particularly where attitude to risk or activity at the property could affect the likelihood or severity of an event, may be investigated and claims rightfully rejected. “I would argue that buyers would need to cover the building the moment they are at risk. This would depend on the detail in the contract, but could be as soon as the sale is concluded or as late as transfer.”
The conversation belongs before signature
For Terblanche, the case underlines the role property professionals play in raising these issues before a contract is signed. “The conveyancer explains the consequences of a contract that has already been signed. By the time the matter reaches the attorney, the parties have already chosen who carries the risk, from what date, and for how much. The agent is the professional involved in that conversation.”
He points to section 67 of the Property Practitioners Act, which requires the property practitioner to complete the mandatory disclosure form at the mandate stage, before the offer is drafted. Where the form is not completed, signed, and attached, the agreement is read as though no defects were disclosed at all. “The legislature places the disclosure duty on the property practitioner who is present when the deal is made,” he says.
That does not mean agents should give legal advice, Terblanche cautions. “We should not. However, a significant gap exists between giving legal advice and ensuring your client understands the deal. Raise the risk conversation early with your client, put it in writing, and route the answers to the conveyancer before signature rather than after. Then note it on the file.”
His practical test is straightforward: if occupation is going to occur before transfer, the buyer, the seller, and the conveyancer should all confirm this in writing before anyone signs, whether in the offer to purchase, an addendum, or a written confirmation from the conveyancer. “If that hasn’t happened yet, the deal is most likely not ready to conclude.”
